Singapore The Economy
Harbor workboats at mooring
A FORMER COLONIAL TRADING PORT serving the regional
economies of
maritime Southeast Asia, Singapore in the 1990s aspired to
be a
"global city" serving world markets and major
multinational
corporations. A quarter century after independence in
1965, the
city-state had become a manufacturing center with one of
the
highest incomes in the region and a persistent labor
shortage. As
one of Asia's four "little dragons" or newly
industrializing
economies
(
NIEs--see Glossary),
Singapore along with the
Republic
of Korea (South Korea), Taiwan, and Hong Kong was
characterized by
an export-oriented economy, relatively equitable income
distribution, trade surpluses with the United States and
other
developed countries, and a common heritage of Chinese
civilization
and Confucian values. The small island had no resources
other than
its strategic location and the skills of its nearly 2.7
million
people. In 1988 it claimed a set of economic superlatives,
including the world's busiest port, the world's highest
rate of
annual economic growth (11 percent), and the world's
highest
savings rate (42 percent of income).
Singapore lived by international trade, as it had since
its
founding in 1819, and operated as a free port with free
markets.
Its small population and dependence on international
markets meant
that regional and world markets were larger than domestic
markets,
which presented both business managers and government
policymakers
with distinctive economic challenges and opportunities. In
1988 the
value of Singapore's international trade was more than
three times
its gross domestic product
(
GDP--see Glossary). The
country's year-to-year economic performance fluctuated
unpredictably with the
cycles of world markets, which were beyond the control or
even the influence of Singapore's leaders. In periods of growing
international trade, such as the 1970s, Singapore could
reap great
gains, but even relatively minor downturns in world trade
could
produce deep recession in the Singapore economy, as
happened in
1985-86. The country's dependence on and vulnerability to
international markets shaped the economic strategies of
Singapore's
leaders.
The economy in the 1980s rested on five major sectors:
the
regional entrepôt trade; export-oriented manufacturing;
petroleum
refining and shipping; production of goods and services
for the
domestic economy; and the provision of specialized
services for the
international market, such as banking and finance,
telecommunications, and tourism. The spectacular growth of
manufacturing in the 1970s and 1980s had a major impact on
the
economy and the society, but tended to obscure what
carried over
from the economic structure of the past. Singapore's
economy always
depended on international trade and on the sale of
services. An
entrepôt was essentially a provider of services such as
wholesaling, warehousing, sorting and processing, credit,
currency
exchange, risk management, ship repair and provisioning,
business
information, and the adjudication of commercial disputes.
In this
perspective, which focused on exchange and processing, the
1980s
assembly of electronic components and manufacture of
precision
optical instruments were evolutionary steps from the
nineteenthcentury sorting and grading of pepper and rubber. Both
processes
used the skills of Singaporeans to add value to
commodities that
were produced elsewhere and destined for consumption
outside the
city-state.
The dependence on external markets and suppliers pushed
Singapore toward economic openness, free trade, and free
markets.
In the 1980s, Singapore was a free port with only a few
revenue
tariffs and a small set of protective tariffs scheduled
for
abolition in the 1990s. It had no foreign exchange
controls or
domestic price controls. There were no controls on private
enterprise or investment, nor any limitations on profit
remittance
or repatriation of capital. Foreign corporations were
welcome,
foreign investment was solicited, and fully 70 percent of
the
investment in manufacturing was foreign. The government
provided
foreign and domestic enterprises with a high-quality
infrastructure, efficient and graft-free administration,
and a
sympathetic concern for the problems of businesses.
The vulnerability inherent in heavy dependence on
outside
markets impelled Singapore's leaders to buffer their
country's
response to perturbations in world markets and to take
advantage of
their country's ability to respond to changing economic
conditions.
Unable to control so much that affected their nation's
prosperity,
they concentrated on those domestic institutions that
could be
controlled. The consequence was an economy characterized
by a
seemingly paradoxical adherence to free trade and free
markets in
combination with a dominant government role in
macroeconomic
management and government control of major factors of
production
such as land, labor, and capital. The extraordinarily high
domestic
savings rate provided reserves to weather such economic
storms as
trade recessions and generated a pool of domestically
controlled
capital that could be invested to serve the long-term
interests of
Singapore rather than of foreign corporations. The high
savings
rate, however, was the result of carefully formulated
government
programs, which included a compulsory contribution of up
to 25
percent of all salaries to a government-controlled pension
fund.
The government held about 75 percent of the country's
land, was the
largest single employer, controlled the level of wages,
and housed
about 88 percent of the population in largely self-owned
apartments. It also operated a set of wholly-owned
government
enterprises and held stock in additional domestic and
foreign
firms. Government leaders, deeply aware of Singapore's
need to sell
its services in a competitive international market,
continually
stressed the necessity for the citizens to master high
levels of
skills and to subordinate their personal wishes to the
good of the
community. The combination of devotion to free-market
principles
and the need for internal control and discipline in order
to adapt
to the demands of markets reminded observers of many
family firms,
and residents of the country commonly referred to it as
Singapore
Inc.
Data as of December 1989
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